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Federal Reserve announces online database for credit card agreements

Consumer credit card agreements from more than 300 credit card issuers are now online in a searchable database created by the Federal Reserve Board.

The agreements contain general credit terms and conditions along with pricing and fee information. The database will help consumers compare credit card agreements and find a card that best suits their personal finance needs.

The database will be updated quarterly; the next submission deadline is August 2, 2010.

Not all consumer credit card agreements are available in the database. For example, the Board's recent credit card rules exempted issuers with fewer than 10,000 open credit card accounts from submission because the overwhelming majority of credit card accounts are held by issuers that have more than 10,000 open accounts.

Additionally, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 requires credit card issuers to post account agreements on their websites as well as to make consumer's individual credit card agreement(s) available to them upon request.

More information on the Board's credit card rules can be found in the online publication "What You Need To Know: New Credit Card Rules".

Fed proposes new rule for Regulation Z

The Federal Reserve Board on Tuesday proposed a rule amending Regulation Z (Truth in Lending) to clarify aspects of the Board's rules protecting consumers who use credit cards. The proposal is intended to enhance protections for consumers and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations. In particular, the proposal would clarify that:

  • Promotional programs that waive interest charges for a specified period of time are subject to the same protections as promotional programs that apply a reduced rate for a specified period. For example, a card issuer that offers to waive interest charges for six months would be prohibited from revoking the waiver and charging interest during the six-month period unless the account becomes more than 60 days delinquent.
  • Application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened. Because the total amount of these fees cannot exceed 25 percent of the account's initial credit limit, a card issuer that, for example, charges a $75 fee to apply for a credit card with a $400 credit limit generally would not be permitted to charge more than $25 in additional fees during the first year after account opening.
  • When evaluating a consumer's ability to make the required payments before opening a new credit card account or increasing the credit limit on an existing account, card issuers must consider information regarding the consumer's independent income, rather than his or her household income.

The proposal would clarify portions of the Federal Reserve's final rules implementing theCredit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), which was enacted in May 2009. The last of these rules went into effect on August 22, 2010.

The notice that will be published in the Federal Register is attached. Comments on the proposal must be submitted within 60 days after publication in the Federal Register.

Senate hearing on overdraft fees - Nov 17, 2009

Tuesday, November 17, 2009 , 03:00 PM - 05:30 PM 538 Dirksen Senate Office Building

view archive webcast

The witnesses will be:

  • Mr. Mario Livieri, Consumer, State of Connecticut;
  • Mr. Michael Calhoun, President, Center for Responsible Lending;
  • Mr. Frank Pollack, President and CEO, Pentagon Federal Credit Union;
  • Mr. John Carey, Chief Administrative Officer, Citibank NA; and
  • Ms. Jean Ann Fox, Director of Financial Services, Consumer Federation of America.

Dodd introduces bill meant to freeze card rates

Credit card rates would be immediately frozen under new legislation introduced on Monday by Senate Banking Committee Chairman Chris Dodd (D-Conn.).

Dodd will introduce the bill in response to concerns that the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, enacted earlier this year, has done little to block credit cards from raising interest rates before the remaining provisions of the CARD Act go into effect.

“We worked long and hard to enact the safeguards included in the Credit CARD Act,” Dodd said in a statement. “And no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded. This bill would end those abuses and further protect customers today.

“At a time when families are struggling to make ends meet, jacked-up rates can quickly create crushing debt," Dodd added. "People need to be responsible with their money, but they shouldn’t be taken to the cleaners by outrageous rates.”

Among key provisions in the CARD Act were requirements of a 45-day notification before a cardholder incurs an interest rate hike, as well as preventions against arbitrary rate hikes and finance charges.

Credit card revenues soar for 2009

"Credit Card Fee and Interest Income Soar as Nation's Largest Credit Card Company Hammers the Customers Who Bailed It Out in 2008

While we are waiting for the December Federal Reserve G.19 Consumer Credit report due February 5th, which will confirm 2009's complete collapse of Revolving Consumer Credit resulting from millions of the insolvent and near-insolvent 60 percent or so of Americans who carry credit card balances month-to-month but who desperately are trying to reduce the hideous debt-shadow which has remained long after the afterglow has faded from years of restaurant meals, trips to Disney World, flat-screen televisions, college tuitions and entrepreneurial forays, inquiring minds may care to put JPM Morgan Chase's full-year card services results under the microscope.

In JPM's January 15, 2010 earnings release, on pages 18-20 of its Earnings Release Financial Supplement, the nation's largest credit card company by cards and balances details the sorry state of what in better years was its most profitable segment.

JPM's 2009 Card Services segment results are summarized in the table above, which highlights some of the lowlights:

  • End of year balances, both held and securitized (so-called Managed Card Assets), fell 14.1 percent in 2009 to $163.4 billion. The number of cards issued (not detailed above) also fell 14.0 percent to 145.3 million from 168.7 million at the end of 2008.
  • Notwithstanding a $26.9 billion decline from 2008, JPM's credit card fee income (late fees, overlimit fees, telephone payment fees, balance transfer fees, annual card fees) soared 30.5 percent to $3.6 billion, and net card interest income jumped 26.4 percent to $17.4 billion as the bank clearly scrambled to raise interest rates on as many cardholders as possible ahead of 2010 rule changes.
  • Reflecting those abominable fee income and interest income grabs from the very taxpayers who enabled their own misery by allowing JPMorgan Chase to be bailed out in 2008 along with the rest of the "too big to fails," the bank's credit card net revenue as a percentage of average balances grew 15.7 percent in 2009.
  • JPM's 2009 total charge volume fell 11.0 percent to $328.3 billion, reflecting the nation's newfound preference for debit cards and cash.
  • 2009 charge offs nearly doubled to $16.1 billion (Managed Card basis), representing 9.33 percent of average card balances.

Competition and regulation in the card payments market

An audio webcast and downloadable MP3 file of Dr Malcolm Edey's speech to the Cards and Payments Australasia 2010 Conference in Sydney are available on the website. The webcast and MP3 file include the Q&A following Dr Edey's presentation.

Html and pdf of the speech.

New interchange fee rules in Dodd-Frank

On June 30, 2010, the House of Representatives approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Financial Reform Act, a comprehensive and expansive set of financial reforms widely thought to be the toughest changes to financial regulation in the United States since the Great Depression. The Senate approved the Financial Reform Act on July 15, 2010, and President Obama signed it into law on July 21, 2010.

Amongst the 2300+ pages of the Financial Reform Act is a small section that may have a large impact on players in the payments industry. Among other things, the provision, called the Durbin Amendment after the Senator who proposed it, gives the Federal Reserve the ability to control a heretofore lucrative revenue stream for issuing banks—the interchange fee. This Update highlights the salient features of the Financial Reform Act as they relate to these interchange fees.

Certain Debit Card Issuers' Fees Must Be "Reasonable and Proportional" Under the Financial Reform Act; Credit Card Issuers Escape this Regulation For Now

Currently, merchants pay an average of 1-2% of the total transaction amount in debit interchange fees. Merchants with larger volumes are able to negotiate a smaller fee. Under Section 1075 of the Financial Reform Act, interchange transaction fees charged by certain debit card issuers on electronic debit transactions must be "reasonable and proportional to the cost incurred by the issuer with respect to the transaction." Regulations clarifying this standard are still to come. Among other items, these regulations must take into account the incremental cost to an issuer for processing a particular electronic debit transaction (as opposed to general processing costs) and costs incurred by the issuer for fraud prevention efforts on that issuer's electronic debit transactions.

Significant Categories of Issuers and Cards Are Exempt From Compliance. Perhaps the most interesting aspect of this legislation concerns which issuers and programs are not required to comply with this portion of Section 1075. The debit card issuers that are exempt from these new limits on interchange transaction fees are:

  • Issuers with less than $10,000,000,000 in assets;
  • Government-administered payment programs involving debit and general‑use prepaid cards; and
  • Certain reloadable, open-loop, prepaid cards or payment devices (that are not marketed as gift cards).

Exemption May Be Lost. Cards and payment programs falling under the second two categories that continue to charge overdraft fees or a fee for the first withdrawal per month from an ATM within the card issuer's ATM network more than one year following the enactment of the Financial Reform Act will lose their exemption from the requirements of Section 1075.

Credit Card Issuers May Be Subject to Similar Restrictions in the Future. Although credit card interchange fees seem to have escaped regulation at this point, insiders say they believe that is because of the perceived blow credit card issuers suffered from the Credit Card Act of 2009; they expect that once that furor fades into the background, they expect Senator Durbin or others will propose an amendment to apply the "reasonable and proportional" standard to credit card interchange fees as well. That seems to be the trend, as Senator Durbin has already proposed additional interchange-related amendments to other bills now making their way through Congress.

Merchants Gain Flexibility to Define Their Own Card Acceptance Policies

Card Issuers Are Limited in Their Ability to Regulate How Businesses Accept Cards. Section 1075 of the Financial Reform Act gives merchants more flexibility by imposing new limitations on the ability of payment card networks (i.e., the servicers that process credit and debit transactions) and issuers to regulate a business's choice of which payment card networks to use and the incentives it offers.

Payment Card Networks Cannot Restrict Customer Incentives. Payment card networks may no longer restrict a business from offering discounts or in-kind incentives for its customers' use of cash, checks, debit cards or credit cards, so long as the business (i) makes these incentives available to all issuers and payment card networks, (ii) offers the incentives to all prospective buyers, and (iii) discloses the incentives clearly and conspicuously (if required by federal or applicable state law).

Issuers Cannot Direct the Choice of Payment Card Network. Debit card issuers and payment card networks can no longer require a business to exclusively use only certain payment card networks affiliated with a certain issuer, nor can these issuers or networks otherwise limit or restrict the number of payment card networks used by a business to process transactions. The choice of payment card network now lies with the individual businesses that accept debit cards. Businesses and Institutions May Set Minimum and Maximum Spending Limits for Credit Card Transactions. Section 1075 of the Financial Reform Act grants businesses, federal agencies and higher education institutions that accept credit cards the right to set certain spending limits.

Minimum Purchase for Card Use Is Allowed. Businesses can set a minimum spending requirement (currently up to a maximum of $10.00) for the acceptance of credit cards so long as that spending requirement applies to all issuers and payment card networks. Certain Institutions May Set Maximum Spending Limits. Federal agencies and colleges and universities can set a maximum spending limit for acceptance of credit cards so long as that maximum spending limit applies to all issuers and payment card networks. Given the restraints imposed by the card network rules on a merchant's ability to choose how and when it will accept which cards, this freedom being given to merchants is extraordinary and almost certainly a welcome relief from the old system. Although many smaller merchants have long ignored the payment card network prohibition on setting minimum purchase amounts for card use, this legislation will permit merchants too big to "fly under the radar" to define their own card acceptance policies.

It is worth noting that, although the regulation of interchange fees and prohibitions on exclusivity with regard to routing applies only to debit cards and certain prepaid cards, the ability to set a transaction minimum for card use applies only to credit products.

Winners and Losers Are TBD

Although it seems clear that the introduction of lower interchange fees and fewer restrictions on card acceptance and routing is a solid victory for merchants, industry commentators are split on whether this development should be considered a victory for consumers. The theory behind the legislation is that the savings experienced by merchants would be passed on to consumers in the form of lower prices, loyalty programs or other incentives. With rulemaking yet to come, it is too early to assess the ultimate impact of the Durbin Amendment on merchants or consumers, but it is fair to say that many of these provisions are the result of years of intense lobbying by merchant and consumer groups alike.


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